November 21, 2011

5 things to know about real estate disclosures

By Brendan DeSimone for Zillow

(Continued from page 1)

Disclosure laws vary from state to state, even down to the city and county level. California has some of the most stringent disclosure requirements. Often, sellers there are required to complete or sign off on over 50 pages of documents, such as a Natural Hazards Disclosure Statement, Lead Based Paint Disclosure, Advisories about Market Conditions and even Megan’s Law Disclosures.

Depending on where you live, sellers can be on the hook for what they disclose (or fail to) for up to ten years. I’ve seen agents and sellers take all types of approaches when dealing with property disclosures. More than anything, I always tell sellers to err on the side of caution. If you know it, disclose it. If you try to hide something, it can come back to bite you long after the sale and it is just not worth it.

Disclosure typically comes in the form of boilerplate documents (put together by the local or state Realtor association), where the seller is responsible for answering a series of yes/no questions detailing their home and their experience there.

Aside from the boilerplate documents a seller is required to complete, if there is any written (or sometimes verbal) communication regarding something negative about the property, it should be disclosed to the buyer. For example, there was a property for sale with a dispute over a tree on the property line and whose responsibility it was. The neighbor faxed a letter to the seller’s real estate agent documenting the dispute. This immediately became a disclosure item that both the seller and buyer needed to sign off on.

Bottom line: Disclosure statements are legal documents that can stand up in court.

3. What do sellers typically disclose to potential buyers?

The work and upgrades sellers have done to their property are a common disclosure, whether the work was done with or without permits. If done with permits, buyers are advised to cross check the seller’s disclosure with the city building permit report. Doing work without the city signing off with a permit is a key disclosure. If the work was not approved by the city, it may not have been performed to code and may cause a fire or health hazard. Buyers should independently investigate any non-permit work that was done.

Other common disclosures include the existence of pets, termite problems, neighborhood nuisances, any history of property line disputes, and defects or malfunctions with major systems or appliances. Disclosure documents often ask sellers if they are involved in bankruptcy proceedings, if there any liens on the property, and so on. Failure to disclose can result in a messy conflict with the buyer after the sale.

Some disclosure documents are very detailed. For instance, among the questions posed by the San Francisco Association of Realtors disclosure statement are:

  • Is there any non-tempered glass on shower or sliding doors?
  • Have there been any unusual odor problems in the neighborhood?
  • Was there any death on the property in the last three years?

4. Is a disclosure the same as an inspection? Are the two related?

A disclosure is something given to the buyer by the seller documenting their knowledge of the property. It is not the same thing as an inspection; because there are things the seller may not be aware of that an inspection brings to light.

This is why a property inspection should always be done by the buyer while in escrow. The inspector will check the property out from top to bottom, many times verifying what the seller has disclosed but sometimes bringing to light new issues. Often, we will see sellers hire a property inspector before going on the market. It seems backwards, but this is the sellers’ opportunity to hire an independent party to inspect the property, in case they missed or were not aware of something.

5. When does the buyer typically receive a seller’s disclosure statements?

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